The S-corp must pay a salary, withhold taxes and issue a W-2 just as if you were an employee for any other business. It's ok to pay the salary as a single payment at the end of the year, if you want, but it is subject to withholding of federal, state income tax and social security and medicare tax. There may be state requirements like unemployment compensation or worker's comp. You must pay a reasonable salary for the work performed. (The point is, you can't pay a token salary and then take the profits as capital gains which are taxed at a lower rate and aren't subject to social security or self-employment tax. You start by paying a reasonable salary for the work being done, then you can take out any additional profits.)
